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Last year, Target became one of the most high-profile corporate victims of a data breach, exposing the credit card numbers and personal information of 110 million customers. Now, just in time for holiday shopping, the public seems to be forgiving and/or forgetting, with customers continuing to sign on for loyalty card programs and total sales rising above pre-hack levels.

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What does it take for a company to regain its customers’ trust after something goes badly wrong? In 2009, Ronald Simms explored that question in the Journal of Business Ethics.

Reputation is a growing concern for corporate executives, and Simms writes that it ought to be looked at as an asset—something that factors into the value of a company and that demands investment. A bad reputation may scare away not just customers but potential employees and investors.

Simms argues that a company’s good reputation depends on its response to any scandal that occurs. Drawing on the work of anthropologist Victor Turner and organizational culture scholar Edgar Schein, he views corporate scandals as “social dramas” that upset the established order and require action from top leadership to address. In Turner’s model, a breach of social norms leads to a crisis and demands that the offender take corrective action in order to be reintegrated into society. Meanwhile, Schein argues that crises bring leaders’ values to the surface, giving them the opportunity to communicate what the company cares about.

Simms cites examples of corporate leaders who used these dynamics to their advantage. For example, in response to a particularly memorable scandal at Tyco International in the early 2000s (it featured a party with an ice sculpture urinating vodka), the new CEO fired 50 executives and the entire board of directors, organized an independent audit involving 25 lawyers and 100 accountants, and reorganized the accounting systems.

According to Simms, a crucial aspect of effective strategies is that they include both an immediate response to manage the scandal and a thoughtful investigation of underlying issues.

“[L]ong-term change and higher level organizational learning can occur only when the organization begins to question why the unethical action was perceived as such and what can be done to permanently correct the perception of unethical action and address with a view to the future the more deep-seated cultural issues that created an environment where the unethical action festered and occurred,” he writes.


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Journal of Business Ethics, Vol. 90, No. 4 (Dec., 2009), pp. 453-472